As May 2020 begins to wind down, a staggering 4.7 million mortgages are in forbearance plans. With 36.5 million unemployed and more businesses finding themselves unable to sustain staffing levels they enjoyed a few short weeks ago, requests for mortgage payment relief are likely to continue to role in. As such, servicers are feverishly working around the clock to help borrowers stave off foreclosure through loan modifications. They are also working to limit their exposure to related compliance risks during these unprecedented times.
In our last MERS® post, we discussed how servicers can reduce overall MERS compliance risk with well document procedures. In this post, we address MERS compliance in the context of loan modification requests.
For a modification to be considered, servicers want to see compelling evidence that the borrower’s situation will return to normalcy. Given the uncertainty right now that is hard to see. It is not just unemployed and furloughed workers without paychecks, self-employed Americans are also struggling to make mortgage payments without a steady flow of income. Unless considered an essential business, the government’s stay at home requirements have dramatically limited their ability to generate income.
Before a servicer considers offering borrowers a modification plan, they should first review the most current version of the MERS Procedures Manual, specifically the chapter on MERS Documents. This chapter provides guidelines for the correct recognition of MERS and identifies prohibited verbiage. Existing modification documents within the organization should also be reviewed in detail to understand what is currently in place and still applicable. Servicers should have new modification documents drawn and reviewed by an attorney who has either been well-briefed on MERS requirements or is already familiar with MERS loans before executing them as policy. A review of Consolidation Extension Modification Agreements (CEMA) should also be included when an existing MERS loan is being consolidated or the new money mortgage is to have MERS as the mortgagee.
Modifications agreements of a registered MERS loan are executed by three parties: the borrower, the lender and MERS as the current mortgagee/beneficiary. One good resource for correct verbiage for drafting these agreements is the Fannie Mae Form 181. It was last updated in 2018 and therefore does not included the new verbiage citing MERS’ capacity as mortgagee, beneficiary or grantee when using the “as nominee for Lender, its successors and assigns” language. Some states such as Washington, Oregon and Montana have additional specific requirements that should be reviewed in detail. It should go without saying but servicers should always consult their own legal counsel for advice related to their circumstance.
Another way to stay on track with MERS compliance is for servicers to review their Corporate Resolution Management System (CRMS) and verify that all bank officers signing modifications on behalf of MERS are authorized through a current MERS Corporate Resolution. Furthermore, any additions or deletions should be made to the CRMS prior to any modification documents being executed.
It’s important to note that CEMAs and standard modifications do not need to be updated on the MERS System. Only modifications made on construction loans require an update.
In these difficult times, additional guidance from the Agencies may be required but hopefully in the meantime this blog serves as a reminder of a few best practice for how to stay MERS compliant with the influx of modification requests our industry is experiencing.